Modelling the asymmetric responses of price level to oil price changes in Qatar

ABSTRACT

This paper inspects the asymmetric effect of oil price on prices level in Qatar. To achieve that, we proceed by employing a nonlinear autoregressive distributed lag (ARDL) approach on data during the period 1990Q1–2014Q4. The estimation results show evidences of an incomplete and asymmetric influence of oil price on price level in the long term. Moreover, we find that price responses to negative changes in oil price is greater than its response to positive changes. Given Qatar’s economic features, a decrease in oil price could cause lower imports and production prices and consequently a substantial influence on domestic prices level. However, the lower effect of positive oil price changes on consumer prices can be explained by the subsidies system, the consumption patterns, and the exchange rate regime.

KEYWORDS:

• Oil price
• domestic prices
• asymmetric
• nonlinear ARDL

JEL CLASSIFICATIONS:

• C32
• E31
• F31

Acknowledgements

This study was benefit a grant from Qatar national research fund (a member of Qatar foundation). Contents of this paper are only the responsibility of the author(s).

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 The index is calculated by relying on the weighted geometric average of 20 trading partners instead of 8.

2 Murshed and Nakibullah (2015) built their indicator of the foreign price using time invariant weights with only 8 trade partners for GCC countries.

3 Additionally, we suspect an asymmetric effect of Nominal effective exchange rate on domestic price level. The results show the absence of this effect in the case of the Qatar economy.

Additional information

Funding

This work was supported by Qatar national research fund [Grant Number UREP19-128-5-024].